Monday, February 22, 2010

Credit cards -- cui bono? cui pendo?

The new credit card rules go into effect today. Paul Tosto mentions an FAQ at the Federal Reserve. My students under age 21 who want credit cards now have to have a co-signer, and the co-signer has to agree if the student wants to increase his credit limit. I watched my son take a small card with a $600 limit at age 18 and pay almost $800 in interest and penalties in about a year. He never got another credit card, so I consider it cheap tuition for a class at the School of Hard Knocks. At the New York Times blog, Jennifer Saranow Schultz suggests that this could be an opening for parents to work with their children to build better credit ratings and better credit and saving behavior.

Other rules will make it harder for others to get credit. Some of them just make sense: You need to be notified if your interest rate is going up with enough time to change cards if you don't like it. Your initial rate is frozen for a year. 21 days between getting your bill and having it due. This may reduce credit availability unless banks make their money elsewhere. And they are. James Kwak tells us this is all about shifting the burden of consumer credit from consumers -- who, you know, actually get the credit and decide when to pay off their debts -- to the retailers who sell stuff on credit.

...this is the credit card industry (partially) shifting its sights from consumers, who benefit from (modest) legislative and regulatory protections, to the retailers, who don�t. It�s also what you would expect when you have extremely high concentration among card issuers (and transaction networks) and low concentration among retailers. Perhaps consumers aren�t the only constituency that needs a little protection.